Derivatives deleveraging describes the process where market participants reduce their exposure to leveraged derivatives contracts. This action typically involves closing out positions or decreasing the amount of borrowed capital used for trading. It often occurs during periods of high market volatility or economic uncertainty. This reduction aims to decrease financial risk.
Context
In cryptocurrency markets, derivatives deleveraging can lead to significant price drops as liquidations cascade across exchanges. News reports frequently monitor funding rates and open interest in perpetual futures to gauge potential deleveraging risks. Understanding this process is important for assessing market stability and potential downside movements. Such events can cause substantial market turbulence.
A recent, significant flush of excessive leverage has reset the crypto market, paving the way for a more stable and potentially bullish accumulation period.
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